Singapore’s house prices are now falling

Singapore's housing market continues to decline, despite a reasonable rate of economic growth. The private residential property price index dropped 0.75% during the year to Q1 2014, in contrast with the 3.5% annual rise seen y-o-y to Q1 2013, based on figures released by the Urban Urban Authority (URA). When adjusted for inflation, house prices fell by 1.68% over the same period.

On a quarterly basis, private residential property prices fell 1.26% (-1.43% inflation-adjusted) in Q1 2014.

By region:

In Core Central Region, prices of non-landed private residential properties fell by 3.56% (-4.47% inflation-adjusted) y-o-y in Q1 2014.
In the Rest of Central Region, property prices were down by 3.59% (-4.49% inflation-adjusted) over the same period.
Outside Central Region, property prices rose by 4.97% (3.98% inflation-adjusted) during the year to Q1 2014.

For landed property:

Detached houses saw a quarterly price drop of 2.4% in Q1 2014
Semi-detached house prices remained unchanged in Q1 2014 from the previous quarter
The prices for landed terrace increased by a meagre 0.4% q-o-q in Q1 2014

For non-landed properties, the average price of apartments dropped by 0.9% q-o-q in Q1 2014 while condominium prices fell by 1.6% over the same period.

The drop in the residential property price index was in sharp contrast with the 38.2% price hike (34% in real terms) during the year to Q2 2010, a period which saw the fastest price-rises of the recent boom.

Measures were introduced in October 2012 to limit mortgage tenure to 35 years, and to lower the LTV ratio for loans longer than 30 years to 60%, with similar measures for loan periods extending beyond age 65.

Other property market cooling measures include a 5% to 7% across the board rate hike in Additional Buyer’s Stamp Duty (ABSD), tighter loan-to-value (LTV) limits and a 10% to 15% increase in the minimum cash down payments for potential buyers with at least one existing housing loan.

These market-cooling measures have been effective, as evidenced by the property price falls and the plunging property demand.

The Singaporean economy expanded by 4.9% in Q1 2014 from a year earlier, similar to the country's growth rate in the previous quarter. Real GDP growth is projected at about 3.6% in 2014, from 4.1% in 2013, 1.9% in 2012, and 6% in 2011, according to the International Monetary Fund (IMF).

The government’s cooling measures have worked

Singapore has one of the world’s most interventionist housing market policies. The government strictly controls and monitors the use of land and the allocation of housing units. The government also actively participates in almost all aspects of housing, including planning, construction, and housing finance.

The seventh round of cooling measures since 2009 were announced by the government in January 2013. Specific measures for residential properties include:

An Additional Buyer’s Stamp Duty (ABSD) rates hike of around 5% to 7% across the board. This will be imposed on Permanent Residents (PRs) first residential property purchase, and onSingaporeans’ second property purchase.
Even tighter LTV limits on housing loans for individuals who already have at least one outstanding loan, as well as non-individuals such as companies.
LTV limits on second housing loans are down from 60% to 50%; or 30% if the loan tenure is more than 30 years or extends past age 65.
LTV limits for 3rd houses onwards were cut from 60% to 40%; or 20% if the loan tenure is more than 30 years or extends past age 65.
LTV limit for non-individual borrowers lowered from 40% to 20%.
An increase from 10% to 25% in the minimum cash down payment for individuals applying for a second or subsequent housing loan.

Sales transactions

Sales transaction volumes were expected to hit 4,000 units for 2012, near the combined EC sales volume in 2010 and 2011, according to Savills Singapore. However the last quarter was weak. In Q4 2012, sales transactions were 22.8% down q-o-q to 7,931 units, according to the URA. The quarterly sales reduction was felt across the board.

4,296 units of uncompleted private residential properties were sold in Q4 2012, 25.8% down on the previous quarter. Sales of completed private residential properties declined by 55.5% to 57 units during the same period.
Sub-sales fell 19% q-o-q to 520 units.
Re-sales fell by 17.6% q-o-q to 3,058 units during the same quarter.

In Q4 2012 there were 277,620 completed private residential units available, with an occupancy rate of 94.6%, and around 86,475 uncompleted units, according to the URA.

Falling interest rates

Singapore’s mortgage market is one of the most developed in Asia. During the past decade, it expanded sharply, from approximately 27.5% of GDP in 2002, to 44.7% of GDP in 2012.

Total outstanding housing loans in 2012 were 15.9% up on the previous year at amounted to SG$152 billion (US$122.6 billion), according to the Monetary Authority of Singapore (MAS).

Interest rates are relatively stable in Singapore, as monetary policy is implemented through the exchange rate, i.e. the foreign exchange rate is used to adjust economic growth and inflation. The prime lending rate has been 5.38% since January 2008.

However, the interest rate on housing loans has fallen to a record low of 2.95% since October 2012, down from 4.41% from December 2010 to March 2012. Variable interest rate mortgages dominate the market.

The rental market is limited

Singapore has a small rental sector, mostly serving expatriates. In the local sector 81% of all rental units are owned by the HBD.

In Q4 2012, rents of private residential properties rose by only 0.7% q-o-q, after increasing by 0.9% the previous quarter, according to the URA. Over the same period, rents of non-landed properties:

rose by 0.7% q-o-q in Core Central Region (CCR)
rose by 0.6% q-o-q in the Rest of Central Region (RCR)
rose by 1.2% q-o-q in Outside Central Region (OCR)

Rent increases have typically lagged property price changes in Singapore, leading to low yields. For instance, residential prices rose almost 100% between 1990 and 1996, but rents rose by only 52%.

However in the most recent boom, the sudden influx of expatriates led rents to rise faster than property prices. From Q2 2004 to Q2 2008, the residential rental index rose by 82% while the price index rose by only 58%. When the residential price index started falling, the rent index also fell but at a slower rate (24.9% vs. 18.6%, respectively from Q2 2008 to Q2 2009).

Based on Global Property Guide’s research dated May 2012, Singapore continues to have poor rental yields. Rental yields in Singapore’s Core Central Region range from 2.58% to 3.01%, with smaller rental units gain higher yields. The average rental yield in May 2012 fell slightly to 2.8% from 2.84% the previous year.

The new series of cooling measures recently introduced by the government is expected to drive some potential buyers to rent properties instead of buying in 2013.

According to Savills, high-end rental rates could correct by 5% to 10% in 2013, falling to below SG$5 (US$4.02) per sq. ft. per month, through limited rental budgets and increasing supply of luxury homes. However the market is supported continued placing cross-border assignments by organizations, as well as the lease renewal by current expats.

Foreigners have pushed up property prices

Singapore has experienced an influx of expatriates in recent years. Some foreigners have preferred to buy, rather than face escalating rentals, especially if they are going to be in Singapore for more than a couple of years. Singapore now has the sixth-highest percentage of foreigners in the world: about 38% of Singapore’s population are foreigners. Of these 10% are permanent residents, and the remaining 28% expats.

Foreign buyers have contributed to Singapore’s strong recent house price increases. Though discouraged by the ASBD, purchases by non-permanent residents increased in Q3 2012 to 511 units, up from 360 units in Q1 2012. In the first half of Q4 2012, foreign purchases accounted for around 23% of the total residential property sales transactions in Singapore, according to Savills Singapore. Malaysians, Indonesians, Chinese, and Indians were the biggest foreign property buyers.

Tighter immigration rules are being imposed by the government, due to strong popular disquiet. Beginning September 1, 2012, foreign workers were required to earn at least SG$4,000 (US$ 3,150) per month, up from the previous SG$2,800, to be able to sponsor their spouses and children for their stay in Singapore. Some were not allowed to bring parents and in-laws on long term visit passes.

Foreign workers whose families are already in the city state are not affected by the new rules, unless they switch employers on or after the said date.

Modest economic growth in 2014

Singapore’s economy rebounded in 2013 with a real GDP growth rate of 4.1%, after expanding by a meager 1.9% the previous year. In the first quarter of 2014, the economy expanded by 4.9% from a year earlier, similar to the country's growth rate in the previous quarter. The strong growth was mainly due to a robust growth in manufacturing and construction sectors.

Real GDP growth is projected at about 3.6% in both 2014 and 2015, according to the nternational Moentary Fund (IMF).

In the first quarter of 2014, the overall unemployment rate (seasonally-adjusted) rose slightly to 2% from 1.8% in the previous quarter, according to the Ministry of Manpower (MOM). Singapore’s average unemployment rate stood at 2% from 2010 to 2013.

There were about 12,900 residents who had been looking for work for at least 25 weeks in Q1 2014, down from 13,700 in a year earlier.

In April 2014, overall inflation rate stood at 2.5%, up from 1.2%, 0.4%, and 1.4% in the previous three months. Singapore’s inflation rate was 2.4% in 2013, from 4.6% in 2012, 5.2% in 2011, and 2.8% in 2010, according to the IMF.

The country’s headline inflation rate is expected between 1.5% and 2.5% in 2014, mainly due to decreased cost pressures from accommodation and private road transport, according to the Monetary Authority of Singapore (MAS).

The country’s central bank, the Monetary Authority of Singapore, maintained its tight monetary policy in April 2014, allowing a “modest and gradual” appreciation of the Singapore dollar, with no changes to the slope, width or centre of the policy band. The Singaporean dollar is one of the best performing Asian currencies.

Currently, the exchange rate stands at USD1 = SGD1.25025.

The outlook for the global economy has brightened, anchored by improving prospects in the G3 as a whole, especially the United States, Europe and Japan.

"Now we know that the global economy is actually picking up quite robustly, particularly coming from the recovery of the economies in the G3,” said Francis Tan of United Overseas Bank. "That's going to support the overseas export demand for our local manufacturers, so the slight increase in the strength of the Singapore dollar may not be too detrimental for their export prices and export demand," he added.

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